Small caps down modestly as European rate cuts offset data gloom
Small-cap stocks opened lower, but quickly trimmed losses as enthusiasm fueled by another round of global rate cuts helped soothe the sting of yet another sobering batch of economic reports. At 9:51 a.m. ET, the Russell 2000 (NYSE:IWM) was down 0.74, or 3.83%, at 510.81.
The weekly claims report came in at 481,000, which was below the forecast of 475,000 and which included an upward revision for last week’s figure as well. The most sobering figure on the claims report was the continuing claims number, which was pegged at 3.84 million, the highest level in more than 25 years. Americans aren’t just losing jobs, they are struggling to find new ones too.
The weekly claims data often gets extra emphasis right in front of a monthly employment report, and neither the weekly claims figure or the ADP survey Wednesday have raised hopes for a bullish surprise on the monthly jobs report Friday morning. Just this morning, analysts at Goldman Sachs raised their projection for the decline in non-farm payrolls to 300,000 from 250,000 (the market consensus is minus 180,000). Goldman also was looking for the unemployment rate to climb to 6.4%, a jump of 0.3% from last month.
The market did gather some support from aggressive rate cuts overnight in Europe, with the Bank of England slashing rates by a whopping 150 basis points, which put their benchmark rates at the lowest point in some 53 years. In addition, the European Central Bank lowered rates by 50 basis points, and even the Swiss National Bank lowered rates. ECB President Jean-Claude Trichet said that the central bank will do what is needed to restore financial stability
Tech stocks paced early declines this morning, powered by a somber outlook from key player Cisco Systems Inc. (Nasdaq:CSCO), which released earnings after the close Wednesday. CSCO actually beat the quarterly forecast, but the company said that revenues could post a decline this quarter for the first time in several years. CSCO shares were down 2.5% shortly after the open — weak, but not as bad as the worst moves last night.
The stock market went from the best election day rally in history to the worst post-election day collapse as the market struggles to decide how much of the recession news has been priced into the collapse, and just where the values are to be found in a very difficult operating environment.
Overshadowed by all the global rate cut news and the CSCO returns is the latest batch of monthly same-store sales reports, which could influence individual stores and the retail sector in general throughout the day. Target Corporation (NYSE:TGT) reported that sales were off 0.7% and the CEO said that Target’s sales were “very disappointing” and that challenging environment could continue into the holiday season. TGT shares were near flat after the open.
Despite the gloom at Target, discounter Wal-Mart Stores Inc. (NYSE:WMT) saw a 2.4% rise in sales, above the forecast, and WMT stock was up 3.2% but the world’s largest retailer admitted that “competitive pricing” was driving the solid results.
Small-cap retailer Hot Topic Inc. (Nasdaq:HOTT) reported same-stores sales rose 8.3% and the music/pop culture apparel, accessories and music items firm raised guidance. HOTT stock was up 8.6% early. Children’s Place Retail Stores Inc. (Nasdaq:PLCE) saw a 9% jump in sales and the stock was up 0.8%.
Outside of the retail realm, other small caps on the move today included H&E Equipment Services Inc. (Nasdaq:HEES), which jumped 14% on solid earnings news as the CEO said that their strong presence in regions exposed to petrochemical, oil patch, mining and energy sectors helped minimize impact from macroeconomic issues. On the downside, THQ Inc. (Nasdaq:THQI), gapped lower and shed some 31% as the video game software firm reported soft earnings and lowered the 2009 outlook.
The Russell pushed through key chart support at 514.50 on the opening, and sustained action below that point would suggest further downside probing. There is some mild intraday chart support along the 507 line, but the best levels come closer to the big “figure” at 500. If the market can mount a recovery rally today, resistance is at 525, 534.50 and then once again in the zone from 546 to 551, where the rally stalled this week.
